Stocks’ Details
 

Tabcorp Holdings Limited

 
COVID-19 Update: Tabcorp Holdings Limited (ASX: TAH) is involved in the provision of gambling and other entertainment services. In a recent update, the company stated that it has secured an agreement with its US Private Placement noteholders for a waiver of interest and leverage cover covenant ratios, pertaining to the next two testing dates being 30 June 2020 and 31 December 2020. The appropriate changes obtained will strengthen the company’s financial flexibility.
 
Covenant Waivers, Dividend and Liquidity Update: In a recent update involving COVID-19 impact, the company updated that it has settled not to pay FY20 final dividend to shareholders. The company has obtained a deal from its bank lenders under its Syndicated Facility Agreement (SFA), including facilities of $2.2 billion, for a waiver of leverage and interest cover covenants for the above mentioned same two testing dates. It is also negotiating with its US Private Placement holders to obtain changes to existing covenants for more flexibility. As on 15th May 2020, the company had undrawn facilities and unrestricted cash amounting to $820 million.
 
1HFY20 Performance for the Period Ended 31 December 2019: During the period, the company’s revenues increased 4.4% year over, achieved in combination with significant integration activity. During the period, the company added another 300,000 active registered customers. EBITDA for the period increased 2.1% year over year.
 

1HFY20 Results (Source: Company Reports)
 
What to Expect: The company aims to review Gaming Services and plans to implement necessary steps for a business optimisation program in 2HFY20. The Tabcorp-Tatts amalgamation is likely to deliver $130 million and $145 million of EBITDA synergies and business improvements in FY21.
 
Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

P/E Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)
 
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months
 
Stock Recommendation: The stock of the company corrected by 6.50% in the last 3 months and is currently trading close to the average of its 52-week trading range of $2.090 - $4.980. The stock has an annual dividend yield of 6.38% and a P/E ratio of 18.47x. The company remains on track to invest in improving product innovation and building digital capabilities. We have valued the stock using a P/E multiple based illustrative relative valuation method and arrived at a target price with lower double-digit upside (in percentage terms). For the purpose, we have considered peers like Aristocrat Leisure Ltd (ASX: ALL), Star Entertainment Group Ltd (ASX: SGR), Skycity Entertainment Group Ltd (ASX: SKC), to name few. Hence, we give a “Buy” recommendation on the stock at the current market price of $3.45 on 5 June 2020.
 

Corporate Travel Management Limited

 
TTV Increased 12% Year Over Year in 1HFY20: Corporate Travel Management Limited (ASX: CTD) is engaged in providing travel management services to the corporate market. As on 5 June 2020, the market capitalization of the company stood at $1.46 billion. Recently, the company stated that Invesco Australia Limited, a substantial holder of the company, has reduced its voting power from 8.75% to 7.54%.  In another update, the company stated that Morgan Stanley and its subsidiaries have ceased to become a substantial holder of the company, effective from 25 May 2020.
 
Market Update: In a recent update, the company indicated that it remains in a solid liquidity position amid COVID-19 outbreak. Further, its existing banking group has agreed to a waiver of all financial covenants for CY2020, which included the removal of COVID-19 from MAE definition. Total facility reduced to £100 million from £125 million. The terms of facility are expected to remain through August 2022. As on 7 May 2020, net cash amounted to $30 million.
 
1H20 Financial Performance: During 1H20, the total transaction value of the company increased by 12% to $3,310.2 million and revenue witnessed an increase of 6% to $222.2 million. This reflects the strength and resilience of the business in the macro conditions. In the same time span, the company renewed its financed facility and reduced its total drawn debt. Underlying EBITDA stood at $64.5 million, flat year over year.
 

1H20 Financial Performance (Source: Company Reports)
 
Valuation Methodology:P/BV Multiple Based Relative Valuation (Illustrative)

P/BV Multiple Based Approach (Source: Refinitiv, Thomson Reuters)
 
Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months
 
Stock Recommendation: The stock of the company gave negative returns of 32.42% over a period of six months and is currently trading below the average of its 52-week trading range of $4.355 - $24.52. The company has an annual dividend yield of 3.1%, with a P/E ratio of 18.00x. While the travel restrictions due to the virus might pose some short-term uncertainty in the business, the company expects to recover the current activity levels in due time. CTD rides on client wins at consistently high levels. Considering the trading levels, decent financial performance, and strong liquidity position, we have valued the stock using a P/BV multiple based illustrative valuation method and arrived at a target price with an upside of lower double-digit (in percentage terms). Hence, we recommend a ‘Buy’ rating on the stock at the current market price of $13.30, down by 0.375% on 5 June 2020.
 

Kogan.com Limited 

 
4QTD 2020 Update: Kogan.com Limited (ASX: KGN) manages a portfolio of retail and services business. The market capitalisation of the company stood at $1.08 Bn as on 5 June 2020. Recently, the company provided a business update in light of the current vigorous trading environment. During the fourth quarter to date of FY20, the company’s Active Customers stood at 2,074,000 with an additional 126,000 Active Customers in the month of May 2020. During the period, gross sales increased greater than 100%, whereas gross profit went up more than 130% throughout 4QTDFY20. The company’s adjusted EBITDA increased >200% across 4QTDFY20. As at 31 May 2020, the company’s cash balance stood at $58.6 million, with the debt facility drawn amounting to $26 million.
 
Other Recent Update: Recently, the company stated that Harry Debney, a director of the company, acquired 12,000 direct ordinary shares via on-market trade. In another update, the company stated that Mr Michael Hirschowitz has stepped down as an independent non-executive director, effective from 20 May 2020.
 
Acquisition of Matt Blatt:  Recently, the company announced that it has acquired Australia’s premier furniture and homewares retailers “Matt Blatt” for a consideration of $4.4 million. The company stated that the acquisition has been financed from its cash reserves. This acquisition will help the company in expanding its reach in the furniture and homewares market.
 
1HFY20 Highlights: During the half-year ended 31st December 2019, group sales amounted to $322.9 million, indicating a rise of 16.4% on the prior corresponding half. Gross profit went up by 10.6%, with gross margin rising by 3.3 percentage points. 
 

1HFY20 Results (Source: Company Reports)
 
What to Expect: The company continues to make investments in building its brand and growing Active Customers. The company is likely to work on the development and improvement of Kogan Marketplace.
 
Stock Recommendation:  The stock of the company gave a positive return of 71.47% over a period of six months and is currently inclined towards its 52-week high of $13.00. The company has an annual dividend yield of 1.27%, with a P/E ratio of 62.34x. Kogan continues to make investments in building its brand and growing Active Customers. On the valuation front, the stock is trading at an EV/Sales multiple of 2.1x as compared to the industry mean (Consumer Cyclicals) of 2.9x on TTM (Trailing Twelve Months) basis. Hence, considering the growth in active customer base, current trading levels and acquisition of Matt Blatt, we give a “Hold” recommendation on the stock at the current market price of $12.38 per share, up by 8.596% on 5 June 2020. 
 
 
Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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